Monday, September 10, 2007

Daily Breeze: Reader sentiment against homeowner bailouts; stage being set for social unrest

I realize this isn't a scientific poll, but I thought it interesting how the Daily Breeze letters to the editor on September 7 have been running overwhelmingly against a taxpayer-funded government bailout of homeowners who have dug themselves deep holes. I tend to lean the same way, though I am well aware that there are unscrupulous lenders and other industry players out there who have had a hand in this debacle:

This week's question: "President Bush has announced plans to help some homeowners 
with risky mortgages keep their houses. Should the federal government step in to help 
homeowners who were hurt by the subprime loan crisis?"

Absolutely not. If he helps some, he would have to help others.

While many sympathize with the negative consequences of those who have taken out bad 
loans, relieving them of their responsibility by bailing them out is not only wrong, 
but is irresponsible of the president and any other politician who has decided to 
become generous with the taxpayers' money.

If Mr. Bush and other politicians on (Capitol Hill) feel so generous helping others 
using our money, then let them take up a collection from other bleeding hearts who 
feel the same way. Better yet, let him go to the people who've created this mess in 
the first place: the greedy, irresponsible Wall Street groups who packaged these 
dangerous loans and the mortgage bankers who pushed them.

- John Doe 1


No. The mortgage companies and the homeowners gambled with risky loans - and they 

- Jane Doe 1

Redondo Beach

I would say definitely no. N-O. The people who went in to get the mortgage had their 
eyes open and over-reached themselves, and the people who lent them money were too 
doggone greedy. The whole thing stinks. Let the chips fall where they may.

- John Doe 2


President Bush is off base announcing that the federal government should assist 
people who had risky mortgages. We cannot use government funds - taxpayers' funds - 
to help people who made a bad judgment.

- John Doe 3


No, No, No! No relief for stupidly large and ridiculously built home loans! If this 
is done, all it does is set a precedent for upcoming "mistakes" by folks who 
shouldn't be buying a home in the first place. Or a car. Or whatever else may send 
them to bankruptcy court.

People need to know what they can and cannot afford. Why would you want to make 
yourself a prisoner to your mortgage? People need to read the documents they are 
signing! People need to ask questions and demand clarification of legalese! Those 
bankers and Realtors get paid a lot of dollars to set you up with a home. You need to 
be sure you are not being set up for a future disaster.

Read everything. Your signature says you understand what you're signing, so don't 
believe it when they say, "You don't need to read that - it's just boring legal 
stuff." Yup, it sure is. It's the part where it says "bring a shovel and dig yourself 
a hole."

- John Doe 4


The federal government should not step in to subsidize borrowers or lenders who gave 
loans to people who did not qualify for normal loan. It is up to the lenders to be 
sure that the borrowers are qualified for the money they seek to borrow. Many of 
these lenders, and the people who invested in these shaky ventures, should realize 
that their poor judgment has backfired. There are no guarantees in this life, and it 
is not the place of government - federal, state or local - to bail out people who 
make poor choices.

- John Doe 5


Now here is a September 10 article by Tom Elias about how the widening wealth gap is setting the stage for social unrest in California. I do not know anything about this author OR his credibility, but I think he is on to something when he speaks of "future trouble as rage builds gradually among many millions of have-nots."

The article points out how property values have remained steady and even increased in the high-end areas, and foreclosures have been very low, while in the lower-end areas, foreclosures have been exploding exponentially and property values are declining.

I don't happen to think that the high-end areas will continue to coast along immune to the forces of contraction, but the angry kid who's about to torch your well-to-do beach neighborhood with his gang-member friends is only going to see the McMansions and conclude there is money there, whether there is money (or flimsy mortgage loans) really there or not.

Talk that sounds like "We will bounce back!" "We will rebuild!" "We will recover!" and reflects optimism comes around market peaks. If you recall from my 3 part series about the last housing slump, people at the bottom were saying the area would "never" recover - "Never. Never. Never." That is the pessimism characteristic of bottom talk. I think the author is on the right track predicting social unrest, but he does not recognize that the optimistic pep-building talk he quoted is characteristic of a peak.

This recalls my January 24, 2006 post "Will a bursting bubble lead to social problems?" I think - YES. And I STILL believe that what one perceives as valuable - in terms of housing - will change very quickly as psychological conditions change.

Daily Breeze stories vanish quickly, so you can read it here:

Widening wealth gap sets stage for social unrest in California
State shows broader divide between rich and poor as middle class incomes stagnate.
By Tom Elias

California is rapidly becoming a classic example of a place where the rich get richer 
and the poor continually get poorer. That's been true for a decade or more when it 
comes to employment, where pay for high-end jobs requiring college degrees or higher 
has grown rapidly, while wages for unskilled labor in fields, carwashes, restaurants 
and hotels have risen only slightly.

Now the real estate market is creating even more severe inequalities. Example: In one 
ZIP code of southern Santa Monica, there were two foreclosures on houses during the 
second quarter of last year and two again for the same time period this year. 
Meanwhile, in another ZIP code almost 100 miles east in the Riverside County city of 
Moreno Valley, there were 23 foreclosures during the second quarter of last year and 
296 this year. Guess where prices are still about three times higher. Statewide, 
foreclosures were up from about 20,000 during that time period last year to 53,000 
this year.

Strikingly, property values in most neighborhoods are down this year, but they are 
actually up in high-end areas where home prices average more than $1 million.

So the rich are still getting richer, and the poor - even the not-so-poor and the 
middle class - are getting much poorer, seeing whatever equity they've built up over 
years of making house payments disappear in a price slump and then often having to 
abandon their homes when monthly payments on some subprime mortgages rise after three 
or five years of requiring only interest.

But that kind of inequality occurs every time there's a real estate recession like 
the one in which the entire nation is mired today.

Even more serious and permanent is the widening difference between economic classes 
in this state spawned by the ongoing wave of immigration from Latin America, both 
legal and illegal.

"By slow degrees, California has changed from a state where opportunities abounded 
and prosperity was more broadly shared to one with an increasing divide between the 
rich and the poor," reports Jean Ross, executive director of the nonpartisan 
California Budget Project in Sacramento. "It makes it harder for working families to 
succeed and to give their children a decent start in life."

A new report from the Budget Project finds the gap between low-wage and high-wage 
workers has widened more in California than other parts of America.

One reason for this, the study found, is that job growth in this state has come 
mostly at the high end and the low end of the wage scale, while the middle ground 
remains largely stagnant.

What the report does not say is that these conditions are largely the result of 
buildups in the high-technology sector and the steady stream of immigration, both 
legal and illegal.

High-technology jobs require education and skills, unless they are simple 
assembly-line posts. Companies like Intel, Google, Yahoo, Qualcomm, Cisco Systems and 
Oracle, which employ many thousands of workers, offer higher pay and better working 
conditions than normal. Fortune Magazine lists all of them among the 50 best 
employers in America to work for. That's partly because their highly skilled workers 
are in constant demand, with headhunters calling many of them almost daily.

But no one would rank any carwash, restaurant kitchen or vineyard in that category. 
Jobs there pay exponentially less than those in high-tech.

The low-end jobs stay in that category for two reasons: There is little or no 
competition for workers because these positions require few skills. The immigrants 
who fill most of them are among the least educated to arrive in America in the past 
century. Especially the illegals, who undergo no screening for education, disease, 
criminal record or anything else, as legal immigrants must.

As a result, the Budget Project reports about 2 million California families with 
incomes below 200 percent of the federal poverty level of $13,690 per year. These 
families can offer their children few resources, often need children to join them and 
help at their jobs and produce a large number of high school dropouts. One result: 
School-achievement tests show a continuing gap between Latino children and whites.

The danger in all this is that extreme distance between economic classes has often 
been a harbinger of social unrest. It was one of the underlying causes of riots like 
those in Watts and other parts of Los Angeles in 1965 and 1992.

This state's government appears oblivious to the problem, but continuing to ignore it 
can only lead to future trouble as rage builds gradually among many millions of 


Blogger bearmaster said...

We are still a way from ANY scenario where hoodlums would be hitting the affluent areas and looking to do home invasions, loot, or torch en masse. I do not exclude it from the realm of possibility in our future.

Did you happen to catch that story about what happened to the Petit family in Cheshire Connecticut on July 22, 2007? Search the Internet archives if you haven't.

Accounts I have read of that tragedy point to the fact that the victims lived in an upper middle class area and were spotted by the perpetrators driving a Mercedes-Benz. Police believe that the victims were chosen on the basis of "looks" - they had money, the perpetrators reasoned, so let's follow it!

11:37 AM, September 10, 2007  
Blogger Rob Dawg said...

Three weeks after signing the sham budget there is a projected $5bn -additional- deficit. This in a state vwith a balanced budget Constitution.

The result will be that there is no chance for another bond issue for a long time. I don't care about for the children or police armor, none.

12:54 PM, September 10, 2007  
Blogger Taylor said...

you just unlocked the key to the california housing market. it's hard to think that the population will continue to grow in a state that is as crowded, expensive and unequal as california's.

shrinking population + fixed supply = declining home prices.

it won't be the lack of credit that will kill CA home prices. it will be net migration out of the state to OR, NV, WA, AZ, CO, etc where middle class americans can find affordable housing and reasonably good paying jobs.

8:49 PM, September 10, 2007  
Blogger wannabuy said...

I believe strongly we will have "economic riots" before this plays out much further. Spring/Summer 2008 or 2009. Most likely 2008. The press will inappropriately call them "race riots" (a la the Rodney King riots.). For in fact they will be based on economic pressure and a feeling of being "LOCKED OUT" of the system.

What is going to kill CA is income from jobs. With our lack of transportation and other high costs of doing business... We'll be hit.

But as others have noted, LA and SFO lag the rest of the state down.

As Rob Dawg noted, the state budget is a painful joke.

Got Popcorn?

2:51 PM, September 11, 2007  

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